Availability and consumption of alcoholic beverages: evidence from Finland

Abstract

The study examines the consumption of alcoholic beverages in Finland over the period 1960 to 2004. Consumption is explained by its own real price, relative prices, expenditure and variables measuring the availability of alcohol. The empirical analysis utilizes information on linkages across different beverages and uses co-integration techniques. The study finds that changes in the availability of alcohol, typically related to institutional changes, have played an important role in determining consumption, especially of beer.

Notes

¹ Karlsson and Österberg (2003).

² Mangeloja and Pehkonen (2006).

³ For a detailed analysis on the changes of alcohol legislation in Finland, see: Edwards et al. (1994) and Karlsson and Österberg (2003).

Table 1. Major changes in the alcohol market in Finland 1960–2002

⁴ Leisure time and alcohol usage are usually found to be complementary (Atkinson et al., 2000).

⁵ We treat alcohol prices as exogenous variables, because alcohol prices in Finland are under strict state control.

⁶ Availability variables (X) include the number of licensed state-owned liquor stores, licensed restaurants and grocery stores with beer-selling rights. Other availability variables were considered but omitted from the final model (e.g. 1995 Alcohol Act, leisure hours), which is a dynamic error-correction SUR system. The Engle–Granger methodology and co-integration was supported by the test statistics.

⁷ Additionally, international studies on the income elasticity of alcohol usually report positive values, as an increase in consumer incomes increases alcohol consumption; see Edwards et al. (1994), p. 115.

⁸ This unexpected finding is in line with recent international research findings applying similar co-integration method and error-correction models for alcohol beverage data. For similar results, see: Coulson et al. (2001) for US, and Duffy (2002) for UK data.